Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Ill. App.: Corporate shareholders properly dismissed for lack of standing, (Nov 11, 2013)

By Linda O’Brien, J.D., LL.M.

Sole shareholders of a foreign corporation lacked standing to pursue claims against real estate brokers for breach of contract, deceptive trade practices, and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, among other claims, where they were not parties to the marketing, auction and listing agreements between the corporation and the defendants, an Illinois appellate court has ruled (American Consumer Products Corp. v. Inland Real Estate Auctions, Inc., November 7, 2013, Spence, R.). Additionally, the circuit court abused its discretion in denying the corporation’s motion to vacate for want of prosecution since there was a genuine issue of material fact as to whether the corporation was transacting business in Illinois without registration.

Robin and Karen Zahran owned American Consumer Products Corporation (ACPC), a Georgia corporation with its principal office in Illinois. In 2007, the Zahrans entered into a forbearance agreement with Suntrust Bank to restrain collection efforts on defaulted loans personally guaranteed by the Zahrans and forgo foreclosure on commercial property owned by the Zahrans in Alabama. Forbearance was conditioned in part on the Zahrans entering into an agreement to auction the property. Inland Real Estate Auctions, Inc. (Inland Auctions) and The Inland Real Estate Group of Companies (Inland Companies), through Frank Diliberto and Paul Rogers, represented that they were real estate brokers licensed in Alabama and could list the property for sale. In 2008, on behalf of ACPC, the Zahrans paid a retainer fee to Inland Auctions and entered into an agreement, authorizing the defendants to market and auction the Alabama property. The Zahrans granted Inland Auctions an exclusive right to sell the Alabama property.

The Zahrans and ACPC filed a complaint against Inland Auctions, Inland Companies, Diliberto, and Rogers, alleging breach of contract for failure to properly market the property and conduct an auction, deceptive trade practices, violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, common law fraud, negligent misrepresentation, fraudulent concealment, and conspiracy to commit fraud. The defendants filed motions to dismiss the Zahrans as plaintiffs for lack of standing, which were granted by the circuit court. In 2010, ACPC filed a Chapter 7 bankruptcy petition and ceased to exist as an entity. The plaintiffs’ counsel withdrew from the case due to the bankruptcy filing and the matter was subsequently dismissed for want of prosecution. In 2012, plaintiffs’ new counsel filed his appearance and motion to vacate the order of dismissal. The circuit court denied plaintiffs’ motion to vacate.

The defendants argued that the Zahrans lacked standing because only ACPC entered into the listing agreement on which the action was based and the Zahrans were not parties to the agreement. The defendants also argued that the Zahrans were not and did not allege that they were third party beneficiaries of the agreement. The court, in rejecting the Zahrans’ contention that the motion to dismiss was premature since lack of standing was an affirmative defense that the defendants failed to plead and prove, stated that lack of standing could be raised in a motion to dismiss and affirmed the circuit court’s granting of defendants’ motion to dismiss.

In reversing the circuit court’s denial of ACPC’s motion to vacate as an abuse of discretion, the court found that ACPC’s corporate dissolution following the Chapter 7 bankruptcy did not deprive it of the authority to maintain a cause of action in Illinois. Additionally, the issue of whether ACPC, a foreign corporation, was transacting business in Illinois without registration in violation of the Illinois Business Act was a disputed question of fact that was improper to determine in a motion to vacate without an evidentiary hearing. Finally, the court remanded the cause for further proceedings.

The case is No. 09-L-1111.

Companies: American Consumer Products Corporation; Inland Real Estate Auctions, Inc.; The Inland Real Estate Group of Companies, Inc.

Cases: StateUnfairTradePractices IllinoisNews